Milk Supply

Agreements (MSA)

Context and

comparison

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Context of MSAs

• End of quota regime leaves a vacuum re. volumes of milk

• EU Milk package (now part of CAP)

• Contracts recommended between private processors and

producers to empower producers, give them security of

tenure and rights to negotiate prices + conditions• Recognition of co-op statutes as providing similar

guarantees

• Irish context

• Need for investment in capacity or other by co-ops

• Need of certainty on volumes

• Forecasting in some cases to ensure matching investment pace

• Need to reassure customers of security of supplies

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IFA process re. consultation

• IFA has issued general recommendations for MSA

• Wherever members requested: briefing organised with co-ops

for relevant members of National Dairy Committee and follow

up with specific recommendations

• We do not/cannot substitute to co-op consultation process• Already done in:

• Kerry

• Dairygold

• Glanbia

• Aurivo

• Lakeland• To be done in:

• Arrabawn

• Wherever else our members request

Comparison of MSAs

July 2014

(Note, some MSAs still

in development)

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1 - Duration and notice?Co-op

Kerry Duration: from effective date (2010) to 31/03/15, then no less than 5 years. Notice – 5 years. Initial duration = 15 years.

Dairygold Duration – 5 years; Notice – 2 years. Initial duration (ID) 7 years. Co-op must give 5 years notice to farmer.

GIIL Duration – 3 years; Notice – 2 years; ID 5 years. GIIL must give 5 year notice to non member suppliers

Aurivo Duration – 3 years; Notice – 1 year; ID 4 years

Carbery Share standard, not MSA (West Cork co-ops -> MSA)

Arrabawn Duration – 1 year; Notice – 1 year; ID 1 year

Tipperary Co-op Duration – 1 year; Notice – 1 year; ID 1 year

Lakeland Duration – 3 years; Initial notice – 2 years; ID 5 years. Notice 1 year after ID. Notice can only be given on 1st Jan of any year after 2018. Co-op has to give farmer 2 years’ notice.

North Cork Co-op Share standard, not MSA

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2 – Share up? How much?Co-op

Kerry No

Dairygold 4c/l (0.5c/l over 7 years or until reached)

GIIL No

Aurivo 3c/l (0.5c/l until reached – avg current shareholding 0.6c/l)Bonus shares don’t qualify. Levy to start from Jul 14.

Carbery Mini 16 shares/1000l on existing; 25 shares/1000l on new milk post 2015. Equiv to approx 2c/l and 3.12c/l. These are Carbery shares, not West Cork Co-op shares.

Arrabawn 3c/l (higher when supplies grow by more than 30%)

Tipperary Co-op 3c/l

Lakeland No

North Cork Co-op 2c/l for quota volume + 40%; 4c/l above that. Producers between 100k and 250k can expand for just 2c/l. 0.5c/l levy from early 2014 to 2018, no levy when prices <29c/l.

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3 – Other financial contributions?Co-op

Kerry No, but no guarantee of milk price after 120% reached.

Dairygold Revolving fund (0.5c/l x 60 monthly payments provided milk price >27c/l); Loan scheme (optional); Deferred payment of 20% of Apr/Sep milk on growth milk post 2015 – postponed till 2018

GIIL No

Aurivo Revolving fund 0.5c/l over 50,000l when price >29c/l. 15% ofsupplies >250,000l also exempt from RF. Levy to start Jan 15.Deferred payment of 20% of May/Sep milk on growth milk post 2015 – to be paid Jan of foll. year

Carbery No, only sharing up

Arrabawn No, only sharing up

Tipperary Co-op No, only sharing up

Lakeland No

North Cork Co-op No, only sharing up

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4 –Volume restrictions? Forecasts?Co-op

Kerry 120% of 31/03/15 quotas gets “leading milk price”. No guarantee above that.

Dairygold No restriction, forecast 3 years ahead +/- 10%. Penalty if undershoot

GIIL No restriction, forecast 3 years ahead, no consequences

Aurivo No restriction, forecast but no consequences

Carbery MSA with co-ops – not yet developed

Arrabawn No restriction, forecast 12 months, no consequences

Tipperary Co-op No restriction, forecast 12 months, no consequences

Lakeland No restriction, no forecast requirement

North Cork Co-op N/a

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5 – Specific milk price commitment?Co-op

Kerry “Leading milk price”, complex formula decided and assessed by Kerry. No outside scrutiny/benchmarking. “Leading milk price” not guaranteed for milk >120% of quota.

Dairygold No, as previously to be set by Board

GIIL Minimum 1c/l profit over costs (extending JV commitment)

Aurivo Benchmark against IDB PPI, but no clear formula yet

Carbery No, as previously to be set by Board. Co-op MSAs still outstanding.

Arrabawn No

Tipperary Co-op No

Lakeland Will endeavour to pay competitive milk price having regard to market conditions. Will be determined by Board

North Cork Co-op N/a

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6 –Exclusivity? (all milk to co-op – this is

standard co-op rule provision)Co-op

Kerry Yes

Dairygold Yes

GIIL Yes. However, allows dual suppliers to continue, but same proportion of growth milk to GIIL

Aurivo Probably (MSA not available yet)

Carbery n/a – MSA with West Cork Co-ops

Arrabawn Probably (MSA not available yet)

Tipperary Co-op Yes

Lakeland Yes. For dual suppliers, same proportion of growth milk to Lakeland.

North Cork Co-op As per co-op rules

Note most/all co-ops provide exemption for own use and own processing

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7 –”Improvements” from consultation?Co-op

Kerry Some indication of possible flexibility re price above 120%; “leading milk price” was a long fought for concession.

Dairygold Penalty for non signature abandoned; longer time for sharing up for farmers whose parents had retained shares;

GIIL Duration/notice periods reduced; price commitment; no compulsion, but suppliers to be encourage to share up; seasonality penalties suspended pre-15

Aurivo Higher mini price for RF levy; earlier repayment of deferred payment; increased level of exempt supplies for RF; later start for RF levy (Jan 15); milk price commitment re. IDB PPI.

Carbery MSAs with co-ops, consultation ongoing

Arrabawn MSA consultation ongoing

Tipperary Co-op Agreement is minimal

Lakeland Shorter duration; no link/obligation to purchase inputs from co-op;

North Cork Co-op Agreement is minimal

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8 – To sign or not to sign? • MSAs are desirable in principle, and offer the farmer important

guarantees: greater clarity on volumes to allow farmer and

co-op to invest appropriately, and at the right pace;

improved customer confidence in security of supply; security

of tenure for farmer through commitment by co-op; greater

receptiveness by banks when seeking credit…• MSAs are coherent with the principles of the EU Milk Package

(measures included in the new CAP to protect farmers and

strengthen their hand in the market)

• Duration/notice: cuts both ways, you commit to supplying for

the period, but the co-op commits to buying your milk

• Some MSA are more challenging as they require financial

contributions: how clear are you about how this will be spent? How convinced are you of the quality of your co-ops’ plans?

• Failing to sign could exclude you from certain bonuses or

options (e.g. fixed price/margin contracts and seasonality bonuses in GIIL)

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9 – To sign or not to sign? You decide!• Milk price commitment. Apart from GIIL (mini 1c/l profit over

costs as per JV commitment), Kerry (“leading milk price”) and

Aurivo (link to IDB PPI), most MSAs reiterate co-op rules (price

set by board “from time to time”).

• Expecting a specific price level is unrealistic in a volatile

market, except for fixed price contracts.• However, expecting a commitment from one’s co-op through

better efficiencies, joint investment/co-operation and

marketing to return the maximum price markets allow is

legitimate.

• Ideally, this should also be benchmarked at an ambitious level

and transparently, by reference to an independently

measured but relevant index (PPI, KPMG, LTO…)

• Ultimately: you have nothing to fear from MSAs, but you must

make sure you understand fully what signing or not signing

involves in your co-op.